Issue Spotlight: Identity Theft Adds to Practitioner Anxiety

by Susan Allen, CPA, Project Manager – Taxation 

This tax season has presented unique challenges for our members. The tangible property regulations (and late-released guidance/relief), along  with the Affordable Care Act (ACA) mandates have made many a tax CPA lose sleep, work long hours, and pull his or her hair out trying to comply with the new rules. But, to make matters worse, tax-related identity theft is also an issue for many clients.

Per the January 2015 GAO Report, Identity Theft and Tax Fraud, we know that during the 2013 tax season, thieves were successful in stealing $5.8 billion in fraudulent IRS refunds. What will those numbers look like this year?

id-theftThe National Taxpayer Advocate Service stated in its 2014 Report to Congress that “from the taxpayer’s perspective, the average cycle time [to resolve an identity theft case] was nearly six months (179 days).” Though the report also provided recommendations to improve the problem, as of today, this study reveals that resolving tax-related identity theft with the IRS is taking way too long.

And, we’re even seeing a growing problem in tax-related identity theft for states. Recently, TurboTax found increased criminal activity resulting in a shutdown of the filing feature in early February (though quickly restored).

Clearly, identity theft is alarming and practitioners are forced to deal with it more often. If you find yourself facing identity theft problems for your clients, here are some steps to take:

  • Contact the IRS Identity Protection Specialized Unit (IPSU) at (800) 908-4490. The IPSU will place a marker on your client’s account and monitor it more closely.
  • Complete and file Form 14039, Identity Theft Affidavit. Make sure to submit the required documentation, such as a copy of your client’s passport, driver’s license, or Social Security card.
  • If your client is receiving IRS notices because of the identity theft, promptly send your response to the address/fax number shown on the notice. Explain the situation and include Form 14039 with the appropriate attachments. If your client’s case is in IRS Collections, request that the IRS place a collection hold on the account to stop collection activity (liens, levies, additional notices, etc.) while the IRS resolves the identity theft case.
  • File the return using the Identity Protection Personal Identification Number (IP-PIN). Using this number will protect your client and result in faster return processing and refund receipt.
  • Advise your client to order credit reportsand put a fraud alert on his or her credit reports. 
  • Help your client create an identity theft reportby filing an identity theft complaint with the Federal Trade Commission and filing a police report.

Finally, never forget that the Taxpayer Advocate Service (TAS) may be useful to resolve tax-related identity theft problems. The TAS is an independent organization within the IRS whose self-stated mission is to ensure that every taxpayer is treated fairly. Contact the TAS by calling (877) 777-4778 or file Form 911, Request for Taxpayer Advocate Service Assistance.